Herron Todd White have released their monthly property clock, and it’s got some news about the Australian property market!
Every month when Herron Todd White release their property clock, we get a very interesting overview of the Australian property market. As a tool, it allows us to oversee, and compare, different markets throughout the country – and find out why certain ones might be thriving, and others might be a bit more stagnant. In a time where our property market is better than it has been for almost a decade, a tool like this is particularly important to making accurate investment and buying decisions. It allows us to forecast and prepare for the coming months – critical in a fast-paced market.
As we enter the second month of 2022, we continue to live in interesting times. There are multiple drivers at play in our property markets and the net result of those influences are difficult to predict. We’ve just been through an extraordinary period of price growth across all markets, and performance was outstanding for both capital cities and regional centres.
That said, our two biggest markets – Sydney and Melbourne – are showing some signs of price attenuation. Increased listings coupled with buyer fatigue have seen the rate of price growth stabilise to conditions more in line with the pre-COVID world. Around 60 per cent of all national property transactions take place in these two cities, so their performance directly affects Australia’s overall real estate picture.
Rising inflation is impacting economies globally putting pressure on the timing of interest rate increases. While Australia’s inflation is tracking lower than say the US, lenders are already pushing ahead with increases to their fixed interest rates with the potential for further rises through the first Quarter of 2022. While rate rises can often dampen market sentiment and activity, perspective is important. Current rates, even if they rise through this year, are still at historically low levels.
The continued transformation of long-term work arrangements, low unemployment (increasing employee choice) and changing property/lifestyle preferences continue to provide conditions for strong regional performance. Interstate and intrastate migration away from densely populated cities has been a hallmark of the demand driving growth in regional and smaller city markets. Overseas migration is also expected to return to greater levels as skills shortages and low unemployment create a significant pull factor.
Whereas, historically, overseas migrants concentrated on major capital cities – in particular Melbourne immediately before the pandemic – what is not known is whether new migration patterns will follow this capital-city trend or add further pressure to regional markets. Migrants may also prefer larger properties and more lifestyle options, which could be supported by upfront flexibility from employers.
These overarching elements are being seen in all property markets across Australia, and will affect how they behave as the country returns to normal as we open up post-pandemic. And while unforeseen external factors can affect the economy at any time, there is good evidence suggesting markets will continue to stabilise in the short term at least, according to HTW’s CEO Gary Brinkworth.
So let’s see what the property clocks have for us this month!
Despite the uncertainty about COVID and a four month lockdown, Sydney dwelling prices defied all expectations in 2021, increasing by 25.3 per cent over the course of the year. Whilst strengthening prices were experienced across all property types and price points, house prices (29.6 per cent growth) outperformed unit prices (15.6 per cent growth).
Looking forward to the year ahead for 2022, expectations are that price growth will continue to slow, however there are likely to be locations, price points and property types that perform better than others, whilst some are likely to see price declines.
Increasing rents (up 10.2 per cent for houses and 7.7 per cent for units in 2021 according to CoreLogic) and falling vacancy rates (which reduced from 3.2 per cent to 2.6 per cent across the year according to SQM Research) may also entice more investors back into the market as rental yields begin to strengthen. The recent reopening of international borders is likely to add to the demand for rental properties in 2022.
2021, much like 2020, was a year filled with many ups and downs as Victorian communities transitioned in and out of lockdowns. A year which was meant to see life return to some sense of normality instead saw cities around Australia facing more health and lifestyle challenges.
Melbourne’s housing market slowed at the end of 2021 rising only 1.3 per cent over the last quarter but, having said that Melbourne housing prices are at new record highs having increased 15.1 per cent in the past year. Despite the slowdown at the end of 2021, it is predicted that property values are likely to increase moderately in 2022. NAB has forecast a 4.9 per cent lift in property values. Thanks to city-dwellers escaping COVID-19 lockdowns, values in the regional towns (30.4 per cent) have outpaced those in capital cities (24.6 per cent), indicating that housing prices in regional areas could continue to rise in 2022.
In a similar theme to 2021, many individuals may look away from the metropolitan areas as international students and office workers remain absent. With rents still low and vacancy rates concerningly high, buyers may continue to enter regional or urban growth markets as opposed to inner-city dwellings.
Alternatively, the limited CBD market activity may encourage individuals to invest and take advantage of the inviting prices. If the vaccination and booster rollout prove to be effective, a return of a normal city lifestyle could see a market recovery in which the CBD mirrors some of its surrounding suburbs.
Ask almost any property commentator to give you their best investment locations for 2022, and Brisbane will be among the mix.
Since late last decade the state has sat in wait, expecting a hot run on local real estate prices to rival Sydney and Melbourne. Unfortunately, it just didn’t eventuate up until 2020. A series of events from floods to low unemployment and lack of general business confidence kept price growth subdued. In addition, factors such as tighter lending conditions and a pandemic seemed like fate saying the state wasn’t going to get a boom.
Then 2021 came along, and Brisbane blossomed. For all the reasons that’ve already been published throughout the media, Australian property markets went from hot to incendiary. Low interest rates, high levels of savings, government assistance… it all helped real estate come up trumps.
But for Brisbane and, more widely, Queensland, it really came together. The state managed to keep the pandemic mostly at bay with low infection numbers and limited impact. Relatively low population density and warm climate certainly had their parts to play too. Interstate and international arrivals were locked out as well – which only resulted in making the market more attractive! Who’d have thought playing ‘hard to get’ would work in the real estate game?
So, after a year which saw Brisbane with the nation’s strongest capital-city property value growth rate (26.1 per cent according to CoreLogic), what can Brisbane expect in 2022?
For starters, here at PropertyMash, we concur with many other analysts in that we believe Brisbane’s market will be one of the nation’s best performers this year. A range of opinion pieces say Brisbane property values will rise anywhere from eight to 25 per cent in 2022. We tend to be a bit more measured in our enthusiasm, but we can certainly see where these figures are coming from.
Queensland has a big-infrastructure-spending decade ahead of us. Not only are there major projects already underway, but the state’s successful Olympics bid is bound to elevate planned construction. Then there’s the rising flood of interstate migrants still crossing the borders and buying up big in Queensland. It is certainly appealing to a wide range of buyers at present.
Rental markets are also very, very tight right now. Rising rents and falling vacancies are the benchmark of late 2021. While this isn’t great for tenants, these conditions do help push property prices.
The upshot is that, in general, the 2022 property market will be one of tempered positivity. We expect overall price growth to remain positive but at a more subdued rate compared to last year. Much of 2022’s gains will likely be in the first half of the year, after which buyers will probably settle, stock numbers will be up and, hopefully, the effects of the pandemic will be better tolerated.
South Australia continues to see properties contracted within historic low days on market and purchase prices being achieved within and above asking price ranges.
The low interest rate environment, reopening of borders and the push to 90 per cent full vaccination are considered factors to positively affect the market in 2022. Underlying uncertainty does however remain with the ever-changing COVID-19 situation. Vendors should ensure that properties are correctly priced whilst purchasers should avoid overextending themselves.
Market segments to watch in Adelaide in 2022 will be the outer ring, prestige market and CBD apartment market. Each of these segments have characteristics which are supported by current market forces.
Record levels of household savings and the low interest rate environment coupled with an affordable entry price point has made the Adelaide outer ring a hive of activity for first homebuyers in the past 12 months. Similarly, investors have found the outer ring to be a safe haven, providing the strongest rental returns across the metropolitan area. The outer ring is characterised by a mixture of post war conventional style dwellings and more modern infill development which has occurred from the mid 1990s to the present day. Price points vary from as low as $130,000 to $550,000. Historically the outer northern suburbs transact at a lower price point than the outer southern suburbs. Outer ring suburbs to keep an eye on in 2022 include Sellicks Beach, Salisbury North and Davoren Park.
As we start 2022, it feels apparent that the Western Australian property market can continue on the same trajectory it followed throughout 2021.
Vacancy rates and stock levels across the state are now at record lows and house prices should continue to rise with investors leading the charge followed by first homebuyers who will find owning a home cheaper than renting. The reopening of Western Australia’s borders should contribute to this market growth as an influx of new and returning residents will add another layer of competition to a very finite housing supply. Significant delays in the building industry will result in a lower rate of supply than forecast in 2021, with many house builds now taking two years as opposed to 26 weeks in 2020. All the signs are indicating a very solid year of growth throughout the state – with the one key factor being COVID-19.
Western Australia has been blessed in many regards in containing outbreaks, resulting in strong confidence levels, but reality is setting in and the market could yet throw a curve ball in the way.
There have seen similar market conditons throughout regional Western Australia, with market conditions generally strenthening in most areas. It’s been a rare case where the majority of the state has moved as one. This was largely as a result of intrastate migration from Perth to regional locations along with diminishing stock levels as owner-occupiers led the market resulting in a diminshing pool of rental properties, driving low vacancy rates and increasing rental returns throughout Western Australia.
Across the regions on the whole we have seen an increase in activity throughout all sectors of the market. One extreme example is the Kimberley town of Derby, which witnessed a strong uplift in activity and an annual median house price growth of 82 per cent – albeit off a very low base. At the southern end of this vast state Mount Barker in the Great Southern region has seen a median house price increase of almost 33 per cent, with sales volume almost doubling, while Geraldton in Western Australia’s Mid West experienced an increase in median house price of 26 per cent. These figures show that 2021 was a strong year for the West Australian market as a whole and that sales growth was not just limited to the Perth metropolitan region.
2021 also saw an extremely tight rental market, with median rental prices of houses and units soaring across the board. The vacancy rate continued to stay extremely low throughout 2021, sitting below one per cent as per REIWA. Insufficient supply of new housing stock due to labour and supply issues plus various government programs removing established stock from the open market will continue to place significant pressure on the rental market and there is likely to be more growth in rental prices throughout 2022. There simply doesn’t seem to be any factors that will either reduce demand or increase supply, especially in the first six months of the year.
After an extended period dating back to 2015 and the completion of the construction phase of Inpex, Darwin – and the Northern Territory in general – had experienced a significant decline in property values, with some residential property markets declining by 50 per cent since the heady boom days. The past 12 months saw a resurgence and hopefully this can be maintained into 2022 and beyond.
That will require a change in the underlying economic fundamentals for Darwin. The Top End appears to have experienced population growth during the pandemic. Retaining (and growing) that population base is the key to an improvement in residential property markets. These newer residents will only stay in Darwin if they have long term employment here. A number of projects such as the Core Lithium mine at Finniss and the new US fuel supply line at East Arm are now gaining traction and beginning to provide those employment opportunities, with a number of other projects also on the way, so there is hope the population growth will be sustained. The big unknown is the future of defence spending in the Northern Territory by either Australia or one of its strategic partners (most likely the US). If this takes the form of a major spend, it could have significant economic advantages to the Territory.
Of course, in common with the rest of Australia, the NT has seen strong price growth in some residential sub-markets and even oversupplied sub-markets such as CBD units have benefited by way of increased rates of sale if not the same level of price growth as other market segments.
There are still notable risk factors on the horizon for the territory however. The cost of domestic construction is rising rapidly and if this is sustained it will have a detrimental effect on the rate of new supply coming onto the market. It will be interesting to see how the area develops over the next 12 months in relation to all of the changes it is currently undergoing.
Canberra’s median house price reached $1,074,187 during 2021 (Allhomes, 2021) with extreme and record breaking prices being experienced in many suburbs, especially the inner north and south suburbs.
With low interest rates remaining and welcoming 2022, it is quite possible that those who missed out on purchasing in 2021 are still on the hunt and hungry to find the perfect pad, however with the talk of APRA tightening lending further and interest rate hikes, some may not be as eager to borrow as much and this could result in less demand and price drops.
Many real estate agents are of the opinion that the growth is not sustainable further into 2022 and the market is yet to cool slightly, an opinion also popular among local valuers. The verdict: no extreme price falls but more of a plateau. HTW valuer, Sandra Howells, believes the market will remain steady for the first quarter of 2022 and due to a shortage in supply, demand will remain strong. Sandra also mentioned shortages of building materials and labour will mean a lag for existing projects.
HTW valuer, Robert Moss, said “I think after last year’s unprecedented price rises the market will continue to grow but at a far more normal rate, say 10 to 15 per cent, mainly due to continued low interest rates (even if they increase slightly) and continued high demand (especially as international migration starts up). People seem to be quite cash rich and there is no benefit in keeping money in the bank with low returns compared to the housing market.”
Hobart is still in very short supply of listings which in turn puts upward price pressure on sale prices.
Outer lying suburbs such as Brighton, New Norfolk, Herdsman’s Cove, Clarendonvale, Rokeby, Midway Point and Sorell offer the best levels of affordability for both freestanding houses and units.
Suburbs closer to the city are becoming more unaffordable for the average Joe, however empty nesters are snapping up smaller residences in these localities and cashing in when they sell their family homes. With borders now open, mainlanders are coming in droves to holiday on the island and in some cases are buying property.
The rate of spread of the Omicron variant of COVID–19 will have a big impact on where property prices will go. Up until the borders were reopened, Tasmania on a whole had under five cases at any one time. Now, at the time of typing this report the state is averaging around 1000 cases per day. Compared to mainland numbers, this is still very low.
Increased interest rates will have a negative effect on property prices, however no one knows when they will increase to date. It’ll be interesting to see where the market takes Tasmania, but if you were thinking of selling, the next few months will be important.
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